Spargo v Franklin HC Tauranga CIV-2010-470-000091
[2011] NZHC 1711
•9 November 2011
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2010-470-000091
IN THE MATTER OF an Appeal under s 94 of the Weathertight
Homes Resolution Act 2006
AND IN THE MATTER OF a final determination of the Weathertight
Homes Tribunal in TRI2009/101-15 and 18
BETWEEN LYNN SPARGO AND MERILYN SPARGO
Appellants
ANDDAVID ALFRED FRANKLIN AND DIANE HOLROYD FRANKLIN NGAIRE ANN SHERWIN AS TRUSTEE OF THE KEREOPA WHANAU TRUST
ANDHTT2003 LIMITED AS TRUSTEE OF THE KEREOPA WHANAU TRUST Respondents
Hearing: 13 April 2011
(Heard at Hamilton)
Counsel: W C Pyke for Appellants
G Brittain for Respondents
Judgment: 9 November 2011 at 11:30 AM
JUDGMENT OF POTTER J
In accordance with r 11.5 High Court Rules
I direct the Registrar to endorse this judgment
with a delivery time of 11.30 a.m. on 9 November 2011.
Solicitors: Evans Bailey, Hamilton – [email protected]
Chris Rejthar & Associates, Tauranga – [email protected]
Copy to: W C Pyke, Hamilton – [email protected]
G Brittain, Tauranga – [email protected]
SPARGO V FRANKLIN HC TAU CIV-2010-470-000091 9 November 2011
TABLE OF CONTENTS
Introduction [1] Background [5] The Weathertight Homes Tribunal Determination [14] Issues [26] Agreed errors of fact [27] Approach on appeal [29]
―Developers‖ and the non-delegable duty [31] “Developer” [34] Non-delegable duty [48] Submissions [51] Analysis [53]
Directors‘ duties of care [73] Directors’ personal liability generally [75] Liability for building defects [85]
The “degree of control” test in “one
man” companies [94]
Analysis [99] Claim in contract by the first respondents for
breach of warranty [108] The agreement for sale and purchase [113] Who is the vendor? [116]
Have the Spargos as vendor caused or
permitted the “works” which comprised
unit 11? [125]
Conclusion [134] Role of the Tribunal [135] Summary of conclusions [161] Result [163] Costs [167]
Introduction
[1] This is an appeal from the final determination of the Weathertight Homes Tribunal (the Tribunal) in claims TRI-2009-101-15 and 18, dated 22 December 2009, and an amended final determination dated 31 May 2010 (―the decision‖).1
[2] The appellants, Lynn and Merilyn Spargo (the Spargos), contend that the Tribunal erred in fact and law in finding they were jointly and severally liable in negligence as ―developers‖, owing a non-delegable duty of care to the respondents. They seek reversal of the determination and that the orders of the Tribunal be quashed.
[3] The first respondents, David and Diane Franklin (the Franklins), with the second respondents Ngaire Sherwin and HTT2003 Ltd as trustees of the Kereopa Whanau Trust (the K W Trust) cross-appeal against the Tribunal‘s findings that:
(a) the appellants were not liable in contract to the respondents; and
(b)the appellants would not have been liable in negligence if not for the non-delegable duty they owed as ―developers‖.
The Franklins seek an order quashing those parts of the Tribunal‘s determination and an order that the appellants are liable to the Franklins for breach of the contractual warranty.2
[4] There is no appeal against quantum, the Tribunal‘s finding as to the causes of
the leaking, or against the findings of liability against the builder, Norfolk Homes
Ltd, its director, Lindsay Mack and the plasterer, Gianne Marcheson.
1 Mayfair Street Units v Spargo WHT TRI-2009-101-15, 31 May 2010 per Member Ruthe [the decision]. The amendment appears to relate only to the renumbering of paragraphs referred to in [96] of the final determination.
2 The amended notice of cross-appeal includes the second respondents in the intituling and at para 4 claims liability to the first and second respondents for $213,000 for breach of contractual warranty. There are errors in this document relating to the parties entitled to claim and the sum claimed.
Background
Factual history
[5] There were two claims in the proceeding, relating to two freehold units at 20
Mayfair Street, Tauranga (―the property‖):
(a) Unit 11, owned by the Franklins, involved a claim for $232,342.09 (including $50,000 for mental distress and excluding settlement payments); and
(b)Unit 12 owned by the K W Trust, involved a claim for $258,208.79 (including $25,000 for mental distress and excluding settlement payments).
[6] Prior to development, the property was a commercial motel. Riverside Holdings Ltd (RHL) agreed to purchase the property on 15 September 1999 as part payment for the sale of the Glenview International Hotel and Conference Centre for
$850,000. On 1 December 1999, Mayfair Court Ltd (MCL) agreed to purchase the property from RHL for $850,000. Mr and Mrs Spargo were the shareholders and directors of RHL and MCL.
[7] Norfolk Homes Ltd was engaged as a builder, and Ross Bryant Design Network Ltd was engaged as a designer. (Norfolk Homes Ltd and its director Lindsay Mack were found liable as builder and director respectively, a finding which is not appealed, while Ross Bryant Design Network Ltd and Ross Bryant settled their claims with the respondents.) A number of reports were prepared by surveyors, structural engineers and the like in relation to a proposed subdivision.
[8] A subdivision application for 13 freehold unit titles was lodged in the name of ―L and M Spargo‖ by RPC Ltd (the surveyors) on 1 May 2000. An application to the Tauranga District Council for building consent was also filed in the names of ―L
& M Spargo‖ to build four new visitor accommodation units. Building consent was
granted on 12 May 2000 and subdivision consent was granted on 9 August 2000.
Bay Building Certifiers Ltd was engaged and building certificates were issued on 2 and 12 May 2000 to inspect building work. It appears that construction commenced at around this time.
[9] On 17 January 2001, Colin and Elizabeth McKain agreed to purchase Unit 12 from MCL for $300,000.
[10] Unit titles were issued on 4 May 2001. Four individual titles comprised Units 9, 10, 11, and 12 and the remainder were comprised in a separate title issued to Fisher Morris Developments Ltd for future development. Master Build guarantees were issued to MCL for Units 9 and 12 on 24 May 2001. On 26 March 2002 and 4
April 2002, Bay Building Certifiers Ltd issued an interim code compliance certificate in respect of Units 9 and 10. Code compliance certificates were not issued in respect of Units 11 and 12.
[11] An agreement for the sale and purchase of Unit 11 was drawn up between MCL and the Spargo Family Trust at a purchase price of $290,000. No date was recorded on the agreement but the possession date was stated to be 12 July 2002. Unit 11 was subsequently sold to the Franklins. Unit 12 was acquired from the McKain Family Trust by the K W Trust.
[12] MCL was struck off the Register of Companies on 17 September 2003.
[13] The following chronology of main events relating to the property is compiled from documentary evidence presented to the Tribunal:
Date Event
15 Sep 1999 RHL entered into an agreement to purchase the Mayfair Street property from Barry and Salina Leong Walters as part payment for the sale of a hotel and conference centre.
18 Oct 1999 Possession date under agreement for sale and purchase dated 15 September
1999.
26 Oct 1999 Transfer to RHL registered on the certificate of title.
15 Nov 1999Application for Certificate of Compliance for demolition of 15 units and erection of 14 new units in the name of ―L and M Spargo‖.
1 Dec 1999 MCL enters into an agreement to purchase the Mayfair Street property from RHL.
28 Feb 2000 Possession date under the agreement for sale and purchase dated 1
December 1999.
16 March
2000
Resource Management Act certificate of compliance for subdivision issued by Tauranga District Council in the name of ―L & M Spargo‖.
April 2000 Application to Tauranga City Council for building consent, made by Mr
Mack in the names of ―L & M Spargo‖.
1 May 2000 Subdivision application for 13 freehold unit titles filed by RPC Ltd.
12 May 2000 Tauranga City Council issues building consent, addressed to the Spargos.
6 June 2000 Transfer to MCL registered on certificate of title.
9Aug 2000 Tauranga District Council issues consent for unit title subdivision (to RPC Ltd).
17 Jan 2001 Colin and Elizabeth McKain, for the McKain Family Trust, agree to purchase Unit 12 from MCL pursuant to an agreement for sale and purchase (transfer registered on 28 June 2001).
4 May 2001 Unit titles issued to MCL for ―Units 1 to 5‖, with Unit 3 being known as Unit 11 (with MCL as original proprietor) and Unit 4 as Unit 12 (with Colin and Elizabeth McKain as original proprietors). Unit 5 becomes a separate title issued to Fisher Morris Developments Ltd for future development.
12 Jul 2002 The Spargos and John Slavich, for the Spargo Family Trust, agree to purchase Unit 11 from MCL pursuant to an agreement for sale and purchase (transfer registered on 2 Oct 2002).
17 Sep 2003 MCL is struck off the Companies Register.
27 Nov 2003 Ngaire Sherwin and HTT2003 Ltd, for the K W Trust, purchase Unit 12 from the McKain Family Trust at auction (transfer registered on 20 January
2004).
14 Jan 2004 The Franklins acquire Unit 11 from the Spargo Family Trust pursuant to agreement for sale and purchase (transfer registered on 13 April 2004).
The Weathertight Homes Tribunal Determination
[14] The Tribunal Member, Mr C Ruthe, first set out the history of the development of the property and the relevant parties. He noted the parties involved in the development and construction of Units 11 and 12 were identical and said the
determination would therefore consider issues of liability and any apportionment flowing therefrom, in a unitary decision.
[15] The claims by the Franklins and the K W Trust are set out as follows:
(a) Against Lynn and Merilyn3 Spargo, as:
co-developers of the complex; directors of the development; and vendors of Unit 11.
(b) Against Norfolk Homes Ltd, as builder.
(c) Against Lindsay Mack as a director of Norfolk Homes Ltd, as well as a project manager in his personal capacity.4
(d)Against Gianne Marchesan, the plasterer and texture coating system applicator, and managing director of Europlast Systems Ltd.5
(e) Against Ross Bryant Design Network Ltd as designer and against
Ross Bryant alleged to be liable as director.6
(f) Against David Washer, the butynol membrane applicator.7
(g)Against Jeffrey Williams, a pre-purchase inspector engaged by the House Inspection Company (BOP) Ltd, with which the K W Trust contracted to undertake a pre-purchase inspection of Unit 12. Claims were brought in contract, tort (negligent misstatement) and under the Fair Trading Act 1986.8
[16] The Member set out the issues in respect of the Spargos as follows:9
3 Named as ―Merlyn Spargo‖ in the decision.
4 Norfolk Homes Ltd and Lindsay Mack were found liable. These findings are not appealed.
5 Gianne Marchesan was found liable. This finding is not appealed.
6 Ross Bryant Design Network Ltd and Ross Bryant settled the claims against them prior to the
Tribunal hearing.
7 David Washer settled the claim against him prior to the Tribunal hearing.
8 Jeffrey Williams was found not liable. This finding is not appealed.
9 At 6-7 of the decision.
Didthe Spargos owe a duty of care to the claimants, either as company directors of MCL or in their personal capacities?
If there was such a duty of care, did the Spargos breach that duty? If there is liability what is the extent of any liability?
Claim in contract (Franklin Claim) – Were the Spargos the Vendors?
If they were, have they breached the warranty?
[17] The Member then proceeded to consider each of these issues. First, citing Body Corporate 183523 v Tony Tay & Associates Ltd,10 he said there is a category of company where directors of one man or single venture companies are exposed to claims. The Member distinguished between ―one man‖ companies involved in a number of projects, where to sheet home liability it is necessary to find the director personally involved, and companies involved in a single venture, where, he said, this is not so. MCL (described as ―previously known as Riverside Holdings Ltd‖)11 was held to be a single venture company.12 He said he drew an inference to support this finding from MCL having been wound up after the finalisation of the development.
[18] The Member then concluded that ―having considered the evidence‖, the roles of the Spargos and MCL were ―so ill defined and interwoven‖ that it was impossible to decide when their individual involvement ended and when they were purportedly only involved as company directors.13 The Spargos were found to be ―personally involved as developers‖ and were liable as such. Therefore, he said, it was
unnecessary to consider their liability as directors.14
10 Body Corporate 183523 v Tony Tay & Associates Ltd HC Auckland CIV-2004-404-4824, 30
March 2009.
11 This is incorrect. MCL was previously Royal Oak Tapu Ltd.
12 At [16] of the decision.
13 At [17].
14 At [18].
[19] Despite that finding, the Member proceeded to consider whether, if there was a duty of care, the Spargos had breached it. He said the Spargos had approached Mr Mack of Norfolk Homes Ltd, as a builder, who recommended Ross Bryant as a designer. The Member stated that the Spargos were not ―neglectful‖.15 He accepted that Norfolk Homes Ltd and Mr Mack had agreed to take full responsibility, and that the Spargos‘ involvement was limited to accepting the designs, authorising the making of applications and making payments on invoices received. The Spargos had no expertise in building and construction and relied on experts. He accepted that they had ―proceeded with caution and care‖ before deciding to contract with Norfolk Homes Ltd. He held: ―There is nothing more they could have done to try to ensure quality‖.16
[20] The Tribunal then stated that it was the Spargos‘ status as developers that exposed them to liability. This decision was reached because:17
…by failing to set up the development company before the commencement of the project, and by failing to produce evidence of any transfer of their personal interests to the development company, the Spargos cannot hide behind the company structure. The company is ultimately of no relevance in the light of their personal responsibility. As such they owed a non-delegable duty of care to the claimants, as stated in Mt Albert Borough Council v Johnson.18 …
[21] Reference was also made to Body Corporate 202254 v Taylor19 and Body Corporate 188273 v Leuschke Group Architects Ltd20 in support of the concept of a non-delegable duty of care. The Tribunal stated that it was bound by the rule in Mount Albert Borough Council v Johnson, and that ―... if it were not for this legal principle of non-delegable duty the Spargos would have no liability‖. As a result the Spargos were held jointly and severally liable for 100 per cent of the claims.21
[22] The claim in contract relied on cl 6.2(5) of the sale and purchase agreement between the Franklins and the Spargo Family Trust, by which the vendor warranted
that a code compliance certificate was obtained (it was not). The Member noted that
15 At [22].
16 At [23].
17 At [24].
18 Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA).
19 Body Corporate 202254 v Taylor [2008] NZCA 317 (CA), [2009] 2 NZLR 17.
20 Body Corporate 188273 v Leuschke Group Architects Ltd (2007) 8 NZCPR 914 (HC).
21 At [30] of the decision.
the Spargo Family Trust was the vendor, and said it was necessary to name the Trust as a party.22 He said that no questions were asked of the Spargos in their role as trustees. He held that as the Spargos were not the vendors, the claim failed.23
[23] The claims against Norfolk Homes Ltd, Mr Mack and Mr Marchesan in tort succeeded (Mr Mack was held liable only as director). The claim against Mr Williams failed on all fronts.
[24] The Tribunal then considered issues of apportionment, contribution and general damages. $25,000 general damages for each individual claimant were awarded. The Tribunal calculated the quantum of each claim, arriving at the following:
(a) Unit 11 — $210,500 (settlement payments excluded); and
(b) Unit 12 — $213,200 (settlement payments excluded).
[25] Although the Spargos were liable for 100 per cent of each claim, they were entitled to contribution of that amount from Mr Mack (45 per cent) and Mr Marchesan (55 per cent). In other words, they were entitled to full recovery of the sums ordered against them.
Issues
[26] The appeal gives rise to the following main issues.
(a) Are the Spargos ―developers‖ owing a ―non-delegable duty‖ to the
respondents?
(b)Aside from this ―non-delegable duty‖, do the Spargos owe a duty of care as directors to the respondents?
22 At [32] and [37].
23 At [40].
(c) Can the Spargos be liable as vendors for breaching cl 6.2(5) of the sale and purchase agreement made with the Franklins?
Agreed errors of fact
[27] At the appeal hearing it was accepted that the Tribunal made a number of factual errors in its decision. These are:
(a) MCL was not previously known as RHL but had purchased the property from RHL. MCL was previously known as Royal Oak Tapu Ltd.24
(b)The development company, MCL, was not set up after the project commenced. It had been incorporated since 17 September 1986. RHL had been incorporated since 7 February 1984.25
(c) The Spargos never had personal interests in the property or development which were capable of transfer to the development company.26
(d)The Spargos did not personally own or purchase the property. The property was owned first by RHL and then by MCL, of which the Spargos were directors and shareholders.27
[28] The respondents nonetheless submit that the Spargos had been personally involved in planning and initiating the development before either company acquired
the property, and, on the basis of the evidence, were ―the developers‖.
24 At [16] of the decision.
25 At [24].
26 At [24].
27 At [27].
Approach on appeal
[29] Section 93 of the Weathertight Homes Resolution Services Act 2006 (the Act) provides a right of appeal from the Weathertight Homes Tribunal. Section 95 sets out the powers appeal courts have in determining an appeal. Subsection (1) states:
95 Determination of appeal
(1) In its determination of any appeal, the court may do any 1 or more of the following things:
(a) confirm, modify, or reverse the determination or any part of it:
(b) exercise any of the powers that could have been exercised by the tribunal in relation to the claim to which the appeal relates.
[30] It is well established that the approach relating to general appeals in Austin, Nichols & Co Inc v Stiching Lodestar28 applies to appeals under s 93 — see, for example, Burns v Argon Construction Ltd,29 Boyd v McGregor30 and Chee v Stareast Investment Ltd.31 The principles that can be derived from Austin, Nichols can be summarised as follows:32
(a) The appellant bears the onus of satisfying the appeal court that it should differ from the decision under appeal.
(b)It is only if the appellate court considers that the appealed decision is wrong that it is justified in interfering with it.
(c) The appeal court has the responsibility of arriving at its own assessment on the merits of the case.
28 Austin, Nichols & Co Inc v Stiching Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
29 Burns v Argon Construction Ltd HC Auckland CIV-2008-404-7316, 18 May 2009.
30 Boyd v McGregor HC Auckland CIV 2009-404-404-5332, 17 February 2010.
31 Chee v Stareast Investment Ltd HC Auckland CIV-2009-404-5255, 1 April 2010.
32 At [4]–[5]. See Chee v Stareast Investment Ltd at [31].
(d)No deference is required beyond the customary caution appropriate when seeing the witnesses provides an advantage because, for example, credibility is important.
(e) The appellate Judge is entitled to use the reasons of the first instance decision maker to assist him or her in reaching his or her own conclusions, but the weight the Judge places on them is a matter for the Court.
“Developers” and the non-delegable duty
[31] Two questions need to be addressed here:
(a) whether the Spargos personally were ―developers‖; and
(b) if so, whether a non-delegable duty should be imposed.
[32] The Spargos argue that the evidential basis for the finding that they were developers is obscure, and that this is the real issue. They contend that the principle of non-delegable duty is not in issue, because if they were never developers, the principle cannot apply. The respondents submit that ultimately the issue is not whether a director is a ―developer‖ or a ―co-developer‖, but whether it is just and reasonable to impose a non-delegable duty of care.
[33] Although these issues are to some extent intertwined, I first set out the authorities on what constitutes a ―developer‖, before turning to the law on non- delegable duties.
“Developer”
[34] The leading case on what constitutes a ―developer‖ is Body Corporate
188273 v Leuschke Group Architects Ltd.33 The issue there was whether a Mr
Cooper had acted in his personal capacity as a developer. Mr Cooper and Mr
33 Body Corporate 188273 v Leuschke Group Architects Ltd (2007) 8 NZCPR 914 (HC).
Leuschke had been directors and shareholders of a company, Colmark Developments Ltd, which owned and developed the defective apartments. The Auckland City Council, seeking contribution, submitted that Messrs Cooper and Leuschke were initially developers, and that Colmark was a vehicle subsequently set up to carry out development obligations.
[35] Harrison J said:34
[31] The word ‗developer‘ is not a term of art or a label of ready identification like a local authority, builder, architect or engineer, whose functions are well understood and settled within the hierarchy of involvement. It is a loose description, applied to the legal entity which by virtue of its ownership of the property and control of the consent, design, construction, approval and marketing process qualifies for the imposition of liability in appropriate circumstances.
[32] The developer, and I accept there can be more than one, is the party sitting at the centre of and directing the project, invariably for its own financial benefit. It is the entity which decides on and engages the builder and any professional advisors. It is responsible for the implementation and completion of the development process. It has the power to make all important decisions. Policy demands that the developer owes actionable duties to owners of the buildings it develops.
[36] In Leuschke the Council cited Body Corporate 187820 v Auckland City Council35 in support of what constitutes a developer. There, Associate Judge Doogue considered that from the cases there were two essential considerations where developers are to be held to a non-delegable duty of care:36
(a) Direct involvement or control in the building process, for example, by way of planning, supervising, or directing the work. This supplies the required degree of proximity; and
(b)That the company is in the business of constructing dwellings for other people for profit. It acquires and subdivides land, and puts up buildings intended to house people for many years, making extensive
changes in the landscape.
34 At [31] and [32].
35 Body Corporate 187820 v Auckland City Council (2005) 6 NZCPR 536 (HC).
36 At [27].
[37] Harrison J considered that Messrs Cooper and Leuschke plainly intended Colmark to be the developer. The only steps they had taken before its incorporation was for Mr Leuschke to purchase the property in his name and for another company to apply for resource consent. Colmark subsequently assumed all legal responsibility for the development, such as settling the purchase of the property, becoming registered proprietor, obtaining resource and building consents, contracting with the builder, borrowing funds and selling the property.37 His Honour was satisfied that Colmark was the developer.
[38] Harrison J rejected the argument that Mr Cooper was a developer in his personal capacity. He considered that Mr Cooper was acting at all times as director and agent of the company, rather than through personal control. Accordingly, Mr Cooper did not owe a personal duty of care to the owners.
[39] The Leuschke definition of ―developer‖ was adopted in Body Corporate
185960 v North Shore City Council (otherwise known as Kilham Mews).38 There, Duffy J had to consider whether Mr Gailer was, in his personal capacity, a developer of the Kilham Mews development. In response, Mr Gailer contended that the sole developer was Kilham Mews Ltd, the legal owner of the property, of which Mr Gailer was a director.
[40] Duffy J said a key piece of evidence in determining whether Mr Gailer was a developer was a joint venture agreement between Kilham Mews Ltd, Mr Gailer and other ―participants‖ who were not parties to the litigation. After examining the terms of the agreement, Duffy J concluded the role of Kilham Mews Ltd was that of a
―bare trustee that passively held the legal ownership of the property until such time as the participants directed it to convey the legal titles to the property to a third party‖.39 The joint venture agreement contemplated that Mr Gailer would enter into contracts for the design, construction and sale of the property, leaving Kilham Mews
Ltd with no room to take any active role.40 Her Honour was also influenced by the
37 At [39].
38 Body Corporate 185960 v North Shore City Council HC Auckland CIV-2006-004-3535, 22
December 2008 [Kilham Mews].
39 At [78].
40 At [58]–[83].
fact that Mr Gailer could have used legal mechanisms to limit his exposure to liability, but did not.41
[41] Duffy J then considered post-contract conduct, such as the builder contracting directly with Mr Gailer (under his trading name), the bulk of the invoices being made out to Mr Gailer (or his trading names), and plans being addressed to him. Her Honour noted that Kilham Mews Ltd was mentioned in some documentation, such as being the applicant for a building consent and in communications with the Council, but there was nothing to contradict the view that Mr Gailer was personally the developer.
[42] In Body Corporate 183523 v Tony Tay & Associates Ltd,42 counsel for the Body Corporate had argued that Mr Tay was a developer in his personal capacity, and even if that argument failed, it was submitted that a non-delegable duty of care ought to be imposed because of Mr Tay‘s central involvement and control.43
[43] Priestley J had no doubt that Tony Tay & Associates Ltd (TTA) was negligent.44 His Honour first canvassed the authorities on directors‘ liability and negligent misstatement. He then held that Mr Tay had acted (in signing the Practical Completion Certificate) solely in his capacity as managing director of TTA, and that he had not been personally involved to the extent of attracting personal liability as a director. This was based in part on his findings that:
(a) TTA was involved in other development projects and ―was not a corporate entity created for the sole or major purpose of progressing a particular development‖;45
(b) TTA was ―far from being a one man band‖, in that it had other
employees;46 and
41 At [88].
42 Body Corporate 183523 v Tony Tay & Associates Ltd HC Auckland CIV-2004-404-4824,
4 December 2009.
43 At [92]–[95].
44 At [138].
45 At [144].
46 At [145].
(c) Although Mr Tay‘s involvement in TTA‘s governance was major, his direct role in the Ellerslie Gardens development was minor.47
[44] Turning to whether Mr Tay was a developer, Priestley J endorsed the Leuschke definition. He considered that TTA and another related company were developers, but did not consider Mr Tay a developer in his individual capacity, saying:48
… Much more would be needed to sheet home that status to him than his shareholdings and directorships in Heritage and TTA and the fact that his interests in those companies resulted in him sharing personally in the profit generated by the Ellerslie Gardens development.
[45] In support, Priestley J cited Body Corporate 202254 v Taylor,49 where the Court of Appeal rejected the argument that Mr Taylor owed a personal and non- delegable duty of care by virtue of his position as director of the development company alone.
[46] Finally, in a recent Tribunal decision Cao v Tony Tay and Associates Ltd,50 Mr Tay was found to be a developer in his personal capacity. Member McConnell first cited the definition in Leuschke, then set out a number of factors which led to his
conclusion. These were that:
Mr Tay and the landowners had jointly engaged TTA to design and build the
house.
He personally signed the application for building consent and was a contact
person (although the landowners were put down as the applicants).
He was the applicant on the Project Information Memorandum.
He was involved in managing and overseeing the construction and was
47 At [147].
48 At [159].
49 Body Corporate 202254 v Taylor[2008] NZCA 317, [2009] 2 NZLR 17 at [37].
50 Cao v Tony Tay and Associates Ltd (in liq) [2010] NZWHT Auckland 26. The decision has been affirmed on appeal, although not directly on the finding of Mr Tay as developer, which was not appealed: Cao v Auckland City Council HC Auckland CIV-2010-404-7093, 18 May 2011.
regularly on site.
He engaged the labour-only builder and had specifically instructed him on a
number of construction matters.
Theproperty was transferred into Mr and Mrs Tay‘s names well before construction of the property was complete (whereupon they lived in it for
some time).
[47] Although Member McConnell accepted that Mr Tay had relied on experts engaged by TTA, TTA was considered the designer and builder but not the developer. Mr Tay was the person sitting in the centre of and directing the development for his own benefit. He and the landowners were considered to have engaged TTA, which engaged the subcontractors. It was further held that Mr Tay had breached his non-delegable duty of care to the owners.
Non-delegable duty
[48] The principle that a developer owes a non-delegable duty has been applied in numerous cases. It stems from Mount Albert Borough Council v Johnson,51 where the Court of Appeal held that a developer has a duty to see that proper care and skill was exercised in building a block of flats and could not be avoided by delegation to an independent contractor.
[49] The relevant passage by Cooke and Somers JJ reads:52
A second reason, as we see it, is that the duty of Sydney to purchasers of the flats was non-delegable. It is not easy to state clear principles about when an employer will be held liable in tort for the negligence of an independent contractor …
In the instant type of case a development company acquires land, subdivides it, and has homes built on the lots for sale to members of the general public. The company‘s interest is primarily a business one. For that purpose it has buildings put up which are intended to house people for many years and it makes extensive and abiding changes in the landscape. It is not a case of a landowner having a house built for his own occupation initially — as to
51 Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA).
52 At 240–241.
which we would say nothing except that Lord Wilberforce‘s two-stage approach to duties of care in Anns may prove of guidance on questions of non-delegable duty also. There appears to be no authority directly in point on the duty of such a development company. We would hold that it is a duty to see that proper care and skill are exercised in the building of the houses and that it cannot be avoided by delegation to an independent contractor.
[50] Although this approach has been criticised in a decision of the House of Lords,53 it has been followed in subsequent New Zealand cases. For example, in Morton v Douglas Homes Ltd,54 it was held that the duty of the development company to observe bylaws and the terms of a building permit could not be delegated to an independent labour-only contractor, who had failed to check the driving of piles put in without supervision. Other cases in which this non-delegable duty on developers has been accepted were cited by Priestley J in Tony Tay,55 and include Leuschke,56 Kilham Mews57 and Sunset Terraces.58 In Leuschke, in rejecting an argument that the directors were attempting to delegate their developers‘ duty to the development company, Harrison J observed that the duty must be in existence at the time of the purported delegation; otherwise there would be nothing to delegate.59
Submissions
[51] The Spargos say that MCL was the developer. They do not accept that any significant steps towards development of the property were taken prior to MCL acquiring it. They point out that profit that flowed from the development was payable to MCL, not the Spargos. They argue that the Tribunal‘s reliance on Tony Tay in finding the Spargos personally liable as developers conflated personal liability based on a person‘s status as a developer with personal liability for negligence as director. Citing Leuschke and Taylor, the Spargos argue that they acted at all times as directors of MCL, not personally as developers. The use of the Spargos‘ personal
names in relation to some aspects of the development are said to be descriptive
53 D & F Estates Ltd v Church Commissioners for England [1989] AC 177 (HL) at 210, where Lord Bridge considered that it was dangerous to adopt such ―novel policies‖ without the assistance of the legislature.
54 Morton v Douglas Homes Ltd [1984] 2 NZLR 548 (HC) at 592.
55 At [91].
56 At [25]–[29].
57 At [41] and [88].
58 Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 (HC) at [478] [Sunset
Terraces].
59 At [35].
errors by third parties. The Tribunal‘s findings are said to be based on errors of fact. Importantly, the Spargos were never owners of the property.
[52] The respondents submit that whether a director is a ―developer‖ is a factual question, weighing factors such as who owned the land, who obtained resource and building consents and engaged contractors and professionals, the terms of any underlying agreement, and so on. It is submitted that the correct approach is to examine these matters, to determine the extent of a director‘s ―assumption of personal control‖ and then to determine whether this is such as to give rise to a non- delegable duty. The respondents highlight the extensive use of the Spargos‘ personal names in many aspects of the development, the lack of documentary evidence as to how the development was funded, as well as ambiguity as to who engaged the builder, what the transactions between RHL, MCL and the Spargos were, and how the profit was ultimately distributed.
Analysis
[53] The Tribunal‘s finding that the Spargos were personally involved as
developers appears to have been based primarily on the following observations:60
(a) MCL was a ―one man band‖, single venture company (in reliance on
Tony Tay); and
(b)The Spargos‘ and MCL‘s respective roles were ―so ill defined and interwoven ... they being the originally named applicants for subdivisional consents‖ that it was impossible to conclude when they were acting individually or in the capacity of company directors.
[54] Subsequently, the Tribunal said it accepted that Norfolk Homes and Mr Mack agreed to take responsibility and all matters pertaining to the construction of the units were dealt with by them, with the Spargos‘ involvement being ―limited to only
accepting the designs for the units, authorising the making of necessary applications
60 At [16]–[17] of the decision.
and making payments on the invoices as they were received‖.61 The Tribunal decided that by failing to set up the development company before commencing the project and failing to produce evidence of any transfer of their personal interests to the development company, the Spargos could not hide behind the company structure.62
[55] I consider the Tribunal has, indeed, confused personal liability as a developer with personal liability as a director, to the extent it relied on Priestley J‘s observations on ―one man‖, single venture companies in Tony Tay. Priestley J was there considering Mr Tay‘s personal liability as a director, concluding that liability was not established.63 He went on to consider whether Mr Tay was personally liable as a developer. Priestley J held that much more was necessary than his directorship of the company and his share of the profit as a shareholder to sheet home the status of a developer to Mr Tay.64
[56] I agree with the respondents that whether the Spargos were personally
―developers‖ depends on a weighing of relevant factual matters. However, it can be confusing to use the term ―assumption of personal control‖ in the assessment. This is associated with the test for personal liability as a director.65 As stated in Leuschke:
[38] Messrs Cooper and Leuschke were entitled to form Colmark to undertake the Rendall Terrace development. Its defining characteristic was its legal personality separate from its shareholders. Its legitimacy is not diminished by virtue of its intended function of isolating or protecting Messrs Leuschke and Cooper from personal liability. That intention is not to be confused with the separate question of whether or not, when performing duties as a director or employee, a shareholder assumes a direct personal responsibility to third parties …
(emphasis added)
[57] Harrison J had previously stated that in order for the Council to succeed in its argument that the directors were personally developers and Colmark was a ―mere
vehicle‖, it needed to establish that Colmark was ―no more than a sham‖.66 Similarly
61 At [22].
62 At [24].
63 Body Corporate 183523 v Tony Tay & Associate Ltd CIV-2004-404-4824, 4 December 2009.
64 At [158]-[160].
65 See the section ―Directors‘ duties of care‖ for a more in depth discussion.
66 Body Corporate 188273 v Leuschke Group Architects Ltd (2007) 8 NZCPR 914 (HC) at [37].
in Kilham Mews where a director was held personally to be the developer, the
corporate vehicle was found to be merely a ―bare trustee‖.
[58] There is no allegation here that MCL was a sham, or that MCL was not a development company. The issue is whether the Spargos can be said to be personally co-developers along with MCL. This becomes a question of whether the Spargos were at all relevant times acting as directors of MCL in undertaking certain responsibilities in the development of the property (as in Leuschke and Tony Tay); or whether the Spargos‘ involvement was such that they were personally ―sitting at the centre of and directing the project‖ and must have been developers in their personal capacity, along with, but independent of, MCL (as in Kilham Mews).
[59] In its analysis, the Tribunal materially misdirected itself when it said:67
The Siena Villas68 decision reinforces the importance of a Tribunal looking at the development from the start. In Siena Villas it was the development company acquiring the land. In this case it was the Spargos.
[60] The Spargos did not acquire the property at any point. RHL acquired the property in September or October 1999 and MCL, the development company, agreed to purchase the property from RHL on 1 December 1999 (although settlement was not due until 28 February 2000 and registration of the transfer to MCL was not effected until 6 June 2000). This is important because in terms of the definition of
―developer‖ in Leuschke it is ―the legal entity which by virtue of its ownership of the property and control of the consent, design, construction, approval and marketing process qualifies for the imposition of liability in appropriate circumstances‖.69 It is clear that ―ownership of the property‖ does not necessarily equate with being the registered proprietor of the property, as the case of Kilham Mews demonstrates. But in this case there is no evidence that the Spargos at any time had any interest in the property. They never had ―ownership‖ of the property as contemplated by the
definition of ―developer‖ in Leuschke.
67 At [27] of the decision.
68 Referring to Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17.
69 At [31].
[61] MCL acquired the property from RHL. MCL acquired the property to carry out the development of units on the property and the subdivision into unit titles. MCL was an existing company of which the Spargos were shareholders and directors, which had been incorporated long before the commencement of the development project. The Tribunal was again in error in proceeding on the basis that the Spargos had failed ―to set up the development company before the commencement of the project‖.70
[62] The Tribunal further erred in proceeding on the basis that the Spargos failed
―... to produce evidence of any transfer of their personal interest to the development company ...‖.71 The Spargos had no personal interests to transfer to the development company. MCL purchased and owned the property as the development company.
[63] These errors in material facts contributed to the rather cryptic conclusion of the Tribunal:72
... that the delineation of the roles of Mr and Mrs Spargo and Mayfair Court Limited were so ill-defined and interwoven that it is impossible to come to any conclusion as to when their individual involvement ended, ... or when they were purportedly only involved in the capacity of company directors.
– and to the ultimate finding that the Spargos were personally involved as developers.73
[64] The Tribunal did not undertake an analysis of the evidence in its decision. Instead, it annexed to the decision a list of the written evidence before the Tribunal which the Tribunal said had been taken into account74 and a transcript of the evidence given before the Tribunal on 28 October 2009. The Tribunal also referred to the
―confusion‖ in the roles of Mr and Mrs Spargo and MCL as summarised in the
claimants‘ opening submissions.75 But the Tribunal did not in its decision identify or analyse the factual matters that underpinned its conclusion that the Spargos were
70 At [24] of the decision.
71 At [24].
72 At [17].
73 At [18].
74 At [10].
75 At [17].
personally involved as developers. Had the Tribunal undertaken this discipline, the material errors referred to above surely would not have been made.
[65] I turn to consider the submissions relied on by the Tribunal in accepting the
―confusion‖ in the roles of Mr and Mrs Spargo and MCL. I shall deal briefly with each of the facts submitted as supporting the respondents‘ submission to the Tribunal that the Spargos were developers, either together with MCL or on their own:
(a) Mayfair Street was a unit title development. The significance of this point is not obvious. The development did involve unit titles. Apparently a prior owner applied in 1993 for consent to unit titles. Of relevance is that MCL owned the property from December 1999 and was the owner when unit titles were subsequently issued in May 2001.
(b)The parent title was held in the name of RHL from October 1999 until June 2000. Again the significance of this point is not obvious. The title to the property was held in the name of RHL from October 1999 until registration of the transfer to MCL in June 2000. The Spargos were directors and shareholders of both RHL and MCL at all relevant times. However, the Spargos never owned the property. There was an unbroken chain of ownership from RHL to MCL.
(c) The Spargos personally engaged Ross Bryant Design Network Ltd to produce the plans and specifications. This is confirmed by documentary evidence. The Spargos had been introduced to Mr Bryant by Mr Mack. Mr Mack had previously built a house for the Spargos and became involved in discussions concerning the development in the latter part of 1999. The Spargos‘ evidence was that they met Mr Bryant only once, at the property. They relied on Mr Mack‘s recommendation. Ross Bryant Design Network Ltd was engaged to prepare scheme plans to obtain resource consent for 13 units and to prepare drawings for marketing. Mr Bryant states that Mr Mack was the main client contact and he conveyed instructions
―from the Spargos‖ to the company. Plans and specifications for a
building consent for units 9, 10, 11, 12 and 14 were subsequently prepared. The specification is stated to be ―for L & M Spargo‖. The job title on the plans reads ―Proposed development for L & M Spargo‖. Ross Bryant Design Network Ltd sent accounts addressed to Mr and Mrs Spargo, which Mr Bryant says was on the instructions of Mr Mack. He states in his affidavit that as far as he is aware the Spargos personally paid all the accounts. He said he was unaware of the involvement of MCL or any other Spargo vehicle and believed his company was instructed by the Spargos who ―were the developers and had purchased the property for that purpose‖.
Mr Spargo on the other hand states in his affidavit sworn on 18 June
2009: ―My attendance would have been in my capacity as a director of Mayfair, I never personally instructed Ross Bryant Design Network‖.
Clearly, Mr Bryant was wrong in his understanding that the Spargos personally purchased the property for the purposes of the development and were the developers. Mr Bryant and his company were introduced to the development by Mr Mack. Mr Mack gave Mr Bryant directions. It is apparent from numerous documents filed in the proceeding that Mr Mack, who had the responsibility of directing the development on behalf of MCL, was loose in his nomenclature and imprecise in the information he conveyed to Mr Bryant, which in turn led to incorrect assumptions by Mr Bryant as to the role of the Spargos. It is unsurprising that Mr Bryant, who gathered his information from Mr Mack, made incorrect assumptions. Mr Bryant did not give evidence at the hearing so was not cross-examined on his affidavit but it is obvious from his misapprehension about who owned the property that any assumptions he made or understandings he had were based on incorrect information. There is no evidence that the Spargos instructed Mr Bryant or his company directly, nor that they assumed responsibility for payment of his accounts which were rendered to them by name.
(d)Other professionals referred to the project as being “for Mr and Mrs Spargo” (e.g. surveying and consulting engineers). Again it is apparent that Mr Mack‘s loose nomenclature caused others who received their instructions in relation to the development from or through him to adopt information provided by him.
On the other hand Mr Spargo states in his affidavit sworn on 18 June
2009:
12.I was formerly a director and shareholder of Mayfair Court Limited (struck off) (―Mayfair‖). At all times I acted as one of the directors of the company and not in a personal capacity. Mayfair was previously known as Royal Oak Tapu Limited and the name was changed on 13 January 2000. ...
13.Mayfair was the owner of the land and engaged responsible professional parties to undertake the development on its behalf. At all times Mayfair relied upon and was guided by the professional advice of the professional parties it had consulted and instructed.
…
17.Mayfair subsequently entered into an agreement with Norfolk whereby Norfolk would be the developer/builder of the ‗Mayfair Motel‘ site responsible for all matters related to the development including design, subdivision and all building and construction matters including consents. Norfolk was also instrumental in introducing the land agents responsible for marketing the development for sale. It has not been possible to obtain a copy of any written agreement between Mayfair and Norfolk.
18.Following a search of the Tauranga City Council file in respect of the development I obtained a copy of the
―Building Consent and/or Project Information Memorandum
(PIM) Application‖ (―the Consent‖) date stamped 1 April
2000.
19.I had not seen the Consent application before and did not complete any of the detail on it. The Consent document records in error the ―Owner (Applicant) Details‖ as L and M Spargo. The owner of the property from 28 February 2000 was Mayfair.
20.The signature on the Consent application appears to be Mr Lindsay Mack‘s. As a director of Mayfair I have seen a number of invoices from Norfolk signed by Mr Mack. ...
Thus there was evidence before the Tribunal that the Spargos were not
acting in their personal capacity at any relevant time despite references to them by Mr Mack and other third parties in documents completed by those persons.
(e) Mr and Mrs Spargo personally applied for resource management and building consents. These applications were not made by the Spargos but were documents submitted on their behalf, in the case of the building consent by Mr Mack, and in the case of the application for the Resource Management Act certificate of compliance by Mr Bryant. Despite the error in the applicants‘ details completed on the application forms, the Spargos were not the party entitled to these consents. The owner, MCL (and previously RHL), was the party entitled to be issued with such consents.
(f) Building consent was granted to Mr and Mrs Spargo on 12 May 2000.
It is unsurprising that the building consent was issued in the name of the applicants as erroneously completed by Mr Mack. It is relevant to note that while Mr Mack was obviously less than precise and accurate in completing documentation in relation to the development in the names of the Spargos, and in information he provided to third parties about ―the developer‖, Norfolk Homes Ltd regularly invoiced MCL for its progress payments.
(g)Construction of the apartments commenced in May 2000 at the latest (the under floor inspection was on 10 May 2000). There does not seem to be any dispute that construction commenced about May 2000. The relevance of this fact is doubtful unless it relates to the respondents‘ contention that at this date MCL was not registered as proprietor of the property, a point that has no substance.
(h)MCL did not acquire the title until 6 June 2000, after all the above had occurred. The transfer in favour of MCL from RHL was registered on 6 June 2000 but I do not see that anything turns on this. Clearly, by June 2000 the development was well underway.
Preliminary inquiries and investigations seem to have been carried out when the property was still owned by RHL, before MCL became the owner and the development vehicle. The important point is that at no stage were the Spargos the owners of the property.
(i)Mr and Mrs Spargo remained involved in the construction. An example was the plasterer noting “SPARGO” on its producer statement. There does not seem to be any dispute about the notation. However, there is no evidence that the Spargos instructed or authorised this. In answer to cross-examination about why ―Spargo‖ was written by Mr Bryant on his invoices, Mr Spargo responded:
But in everything that is written here in our name, we have – even this application, there is nothing with our signature on, nothing. We have not signed a document, nothing. That was oversight, no doubt, like it happens in many businesses. If you go in there and you say you wanted something for Mr Spargo and where it should have been booked out as – well, Mayfair Court say, those things do happen and you would know that too, yes. Because, as I say, it was just a contract between Mayfair Court and Norfolk Homes.
(j)Handwriting on the Master Builders’ Certificate identifies “Lynn Spargo” as the developer. This document does not appear to have been in evidence before the Tribunal but again it tends to indicate third party error. On the other hand the Master Build New Home Guarantees 24952 and 24953 were issued to ―Mayfair Court Ltd‖ in respect of units 9 and 10 on 24 May 2001.
(k)After MCL had subdivided the unit titles, unit 11 was transferred back to Mr and Mrs Spargo as trustees of the Spargo Trust. Mr and Mrs Spargo and Mr Slavich sold the property to Mr and Mrs Franklin. These facts can have no relevance as to who was the developer. Once the unit title development was completed, MCL sold the units to various third parties except unit 11 which was sold to the Spargo Trust. The trustees sometime later sold it to the Franklins. There is no logical connection between the transfer to the Spargo Trust and the roles of the Spargos in the development.
(l)There is no evidence that Mr and Mrs Spargo actually paid MCL for unit 11. The “sale price” achieved to the Franklins may well have been the method of extracting the profit from the development. The focus of this submission is unclear. The Spargos would not have paid for unit 11. They were not the purchasers. The Spargo Trust was. Included in the documentation filed in the proceeding is the agreement for sale and purchase between MCL and ―Spargo Family Trust‖, undated but with a possession date specified as 12 July 2002. Clause 14 provides for the purchase price to be paid as to $225,000 in cash in one lump sum, with the balance of $65,000 (total purchase price $290,000) being secured by deed of acknowledgment of debt in favour of the vendor MCL.
A solicitors‘ settlement statement addressed to the directors of MCL dated 12 September 2002 shows the receipt of the cash portion of the purchase price, $225,000, with a debit for a loan repayment to Marac of $200,150 ($200,000 plus a discharge fee of $150) less costs and disbursements. The resultant balance of $23,062.92 is shown as
―deposited to your account‖. There does not seem to be any evidence to support the submission that the Spargos personally received the profit from the development.
[66] I agree with the Tribunal Member that the documentation referred to in the respondents‘ submissions to the Tribunal shows some confusion and inaccuracy, particularly on the part of Mr Mack and those who received instructions or information through him. However, against the firm and consistent evidence of Mr and Mrs Spargo that they were not involved in the development other than as directors of MCL which contracted with, and delegated all responsibility to, Norfolk Homes Ltd and Mr Mack, the ―confusion‖ does not support the Tribunal‘s finding that the Spargos were personally involved as developers. This finding also seems to be in contradictory to findings reached by the Tribunal just five paragraphs later in
the decision when, in considering whether the Spargos owed a duty of care to the claimants, the Tribunal said: 76
... The Tribunal accepts Mr Spargo‘s evidence that Norfolk Homes and Mr Mack agreed to take responsibility and all matters pertaining to the construction of the units were dealt with by them. The Spargos‘ involvement was limited to only accepting the designs for the units, authorising the making of necessary applications and making payments on the invoices as they were received. Mr Spargo was not challenged on this evidence.
[67] I summarise the factors I consider are relevant in analysing who was the developer of the property:
(a) The property was first acquired by RHL in September 1999 and then was purchased by MCL in December 1999. There was a continuous chain of title from RHL to MCL. At no point did the Spargos personally own the property. A proposition by the respondents‘ counsel in submissions, that the agreement for sale and purchase between RHL and MCL dated December 1999 was backdated to suggest earlier engagement by MCL in the development project than was in fact the case, was not put to Mr or Mrs Spargo in cross- examination.
(b)MCL appears to have become a party to the contract with the builder, Norfolk Homes Ltd, though it is unclear who initially engaged Norfolk Homes Ltd. No written agreement with Norfolk Homes Ltd has been provided. Mr Spargo said in answer to questions from Mr Moorcroft at the Tribunal hearing: ―we entered into an agreement, verbal agreement with Norfolk Homes. When I say ―we‖, Mayfair Court entered in a verbal agreement with Norfolk to engage an architect to design and build after costings‖.
(c) Norfolk Homes Ltd invoiced MCL from about 14 September 2000.
Again, a proposition by the respondents that the 14 September 2000 invoice, which included progress payments for unit 10 from May
76 At [22] of the decision.
2000, was deferred to coincide with MCL‘s actual later involvement in the development project, was not put to Mr or Mrs Spargo.
(d)Mr Spargo visited the site perhaps once or twice a week but did not give any direction to the contractors. Responsibility for all matters pertaining to construction was deferred to Norfolk Homes Ltd. The Tribunal accepted this was so.77
(e) The designer, Ross Bryant Design Network Ltd, was engaged by Mr Mack though the Spargos met him, they said, on one occasion. He instructed the accounts to be sent to ―Mr and Mrs L Spargo‖. They did not ask for the invoices to be redirected. The site plan prepared by Ross Bryant Design Network Ltd was stated to be ―for L & M Spargo‖.
(f) ―L & M Spargo‖ was named as the owner/applicant on the building consent and Project Information Memorandum application. This was signed by Mr Mack. The building consent issued by the Tauranga City Council dated 11 May 2000 was in the names of the Spargos as owners.
(g)A subdivision application for 13 freehold unit titles was lodged in the name of ―L and M Spargo‖ by RPC Ltd, surveyors. Subsequently, RPC addressed a letter to ―L & M Spargo‖ enclosing performance bond documents for the subdivision, which record the parties as Tauranga District Council and MCL.
(h)The ―architextures‖ coating compliance form filled out by the plasterer, Mr Marchesan from Europlast Systems Ltd, lists the builder/owner as ―Spargo/Norfolk Homes‖.
(i)MCL appears to have been responsible for raising funds for the development. A mortgage to National Bank of New Zealand Ltd was
77 At [22] of the decision.
registered against the title to the property (C/T 17C/262) when the transfer from RHL to MCL was registered on 6 June 2000. This was discharged and replaced with a mortgage to Marac Finance Ltd on 7
December 2000. A report provided by Bay Valuation Ltd to Marac Finance Ltd on 28 February 2001 named the client as ―Mayfair Court Ltd‖.
(j) MCL took out insurance policies for liability as a property developer.
New Zealand Insurance issued policy endorsement schedules to MCL.
(k) The owners are stated to be ―Lyn & Merlin Spargo‖ on the building
certificate issued by Bay Building Certifiers Ltd in May 2000.
(l)A letter in May 2001 from Master Build Services Ltd informing of the approval of the new home guarantee application was addressed to MCL and the guarantee was issued to MCL.
(m)Other communications from professionals, trades and businesses such as from RPC Ltd, Colin Amerin Contracting, Mastercraft Kitchens & Bathrooms, Europlast Finishes and so on were made directly to Mr Mack or Norfolk Homes Ltd.
(n)MCL‘s GST returns recorded payments made inter alia to Norfolk Homes, Coopers Waste, RPC Ltd, Shrimpton and Lipinski Ltd, the structural engineer, rates and water for the Mayfair property.
(o) MCL sold three of the units to arms‘ length purchasers and one to the
Spargo Family Trust after the development was completed.
[68] The Spargos say the use of their personal names on some of the paperwork was in error and the fault of third parties. They point out that none of the documents where such errors occurred were signed or endorsed by them. Mr Pyke described these errors as ―sloppy‖ practices, rather than indicative of the Spargos, who never owned the property, being involved as developers. The Spargos must take some
responsibility for the ―sloppy‖ documentation, if only because they failed to correct
errors (as they claim them to be) when they had the opportunity to do so.
[69] However, Mr Spargo‘s evidence on this aspect (which was supported by Mrs
Spargo) was consistent. In his affidavit sworn on 18 June 2009 he said:
61.At all relevant times Mayfair Court Limited was the owner of the proposed development site in its own right.
62. There was no joint venture or partnership between Mayfair Court
Limited and myself personally.
63.Mayfair Court Limited relied on competent professional parties to advise it and undertake the development in accordance with the proper skill and care required.
64. The principal party responsible for the development is Norfolk
Homes Limited.
65. I did not in a personal capacity own the ‗Mayfair Motel‘ or any part
of it, nor did I personally purchase and sell unit 11.
66. At no time was I personally responsible for or assume control of:
the design;
subdivision or consents;
construction of the development; or sale of the units.
67.I did not become involved in matters at the construction site either personally or as a director.
68.At all relevant times I acted either as a director of Riverside Holdings Limited or Mayfair Court Limited; or as a trustee of the Spargo Family Trust.
69. I did not profit from the development in a personal capacity.
[70] In answer to cross-examination by Mr Moorcroft, focussing on the frequency of his site visits, Mr Spargo was adamant and consistent that MCL was the developer and that he and Mrs Spargo did not assume a directing or controlling role:
MR MOORCROFT: Once or twice a week. So you‘re quite – would you
accept that you‘re quite heavily involved?
MR SPARGO: No
MR MOORCROFT: Once ...
MR SPARGO: I wouldn‘t call that heavily involved.
MR MOORCROFT: I put once or twice a week, checking on things, to be fairly involved. I mean, if you said to me ―I was only there once or twice‖, I would say, okay you may not have been heavily involved. But you were there, on your own admission, twice a week.
MR SPARGO: Once or twice a week, talking to Norfolk Homes – Mr Mack, Norfolk Homes. We had nothing to do with it. Norfolk Homes was employed to do all this work. I wouldn‘t know a thing about a building. I never picked up a hammer, I never picked up a nail. We liaised with Mr Mack at Norfolk Homes, end of story.
[71] I accept that MCL was intended as the legal entity to undertake the development. I note the following factors:
(a) That the Spargos might have commenced planning the development before title belonged to MCL, and that RHL initially acquired the property, do not necessarily lead to the conclusion that the Spargos were personally developers. In Leuschke the property was initially purchased in Mr Cooper‘s name and resource consent applied for by another company before Colmark Developments Ltd acquired the property.
(b)The Spargos‘ personal names were mainly used in relation to documents involving independent contractors. The subdivisional and building consents were applied for in the Spargos‘ personal names, but not completed or signed by them.
(c) MCL was the entity that settled the purchase of the property, borrowed funds, arranged insurance, and sold the property (albeit as the registered proprietor it had to do so). It also appears to have paid expenses to do with the development.
[72] Although the Spargos may have taken a greater personal role than Mr Cooper in Leuschke, they never owned the property as he did prior to the incorporation of Colmark. I do not consider the Spargos structured their affairs in such a way as to lead to the conclusion that they intended personally to be the driving force behind
the development, with MCL as a bare trustee of the property, as in Kilham Mews. I conclude that MCL was the developer and Mr and Mrs Spargo were acting as directors of MCL in relation to the development. Accordingly, MCL as developer owed a non-delegable duty of care in respect of the development. But the Spargos owe no personal duty of care to the respondents.
Directors’ duties of care
[73] Having come to the conclusion that the Spargos were acting as directors of MCL and not in their personal capacity, it is necessary to look at the separate question of whether they have assumed personal liability to third parties in performing their duties as directors.
[74] The Tribunal made inconsistent statements in this regard. Initially it stated that there was no need to make a finding as to the Spargos‘ liability as directors because they had been found personally liable as developers; subsequently it said that the Spargos were not ―neglectful‖ as their involvement and expertise were limited.78 It observed that ―if it were not for this legal principle of non-delegable duty the Spargos would have no liability‖.79
Directors’ personal liability generally
[75] A claim may be made against a director personally without piercing the corporate veil of the company by attributing to him or her personal liability to third parties. The starting point for this analysis is the Court of Appeal‘s decision in Trevor Ivory v Anderson.80
[76] In Trevor Ivory, Mr Ivory provided agricultural consultancy services through his company, Trevor Ivory Ltd. The company had contracted to provide horticultural advice to the Andersons. In the performance of that contract, Mr Ivory provided
negligent advice in respect of a raspberry plantation, leading to significant crop
78 At [18] and [22]–[23] of the decision.
79 At [30].
80 Trevor Ivory v Anderson [1992] 2 NZLR 517 (CA).
losses. The Andersons sued the company and Mr Ivory personally in negligent misstatement.
[77] The Court of Appeal unanimously held that Mr Ivory was not personally liable for giving that advice on the basis that he had not assumed personal responsibility for his actions. However, all three judges delivered separate judgments. Two broad bases for the decision can be discerned:
(a) Cooke P and Hardie Boys J relied upon the ―disattribution principle‖.
Mr Ivory‘s acts were attributed to the company as the ―directing mind and will‖, such that he was acting ―as‖ the company and could bear no personal liability for his negligent actions, unless he assumed personal responsibility for them. At its most extreme this could be interpreted as saying that directors are immune from civil liability, unless the presumption is rebutted by an assumption of personal responsibility.
(b)McGechan J looked solely at the cause of action, the tort of negligent misstatement. Assumption of personal responsibility is an element of negligent statement. McGechan J found that Mr Ivory had not assumed personal responsibility for his negligent actions as he was acting merely as agent for his principal, Trevor Ivory Ltd, and thus was not liable.
[78] These separate approaches have each been followed in a number of cases.81
In Williams v Natural Life Foods82 and Standard Chartered Bank v Pakistan Shipping Corp (Nos 2 and 4),83 however, the House of Lords rejected the disattribution basis for directorial liability, stating that assumption of personal responsibility is only
required where it is an element of the tort.
81 For example, the ―disattribution‖ theory was applied in Anderson v Chiltern (1993) 4 NZBLC
103,375 (HC) and Banfield v Johnson (1994) 7 NZCLC 260,496 (HC), while the ―elements of the tort‖ approach was evident in Watson v Dolmark Industries Ltd [1992] 3 NZLR 311 (CA) and Lakeland Steel Products Ltd v Stevens [1996] 2 NZLR 749 (HC).
82 Williams v Natural Life Foods [1998] 1 WLR 830 (HL).
83 Standard Chartered Bank v Pakistan Shipping Corp (Nos 2 and 4) [2003] 1 AC 959 (HL).
[79] This preference for the ―elements of the tort‖ approach over the
―disattribution‖ approach was adopted in Body Corporate 202254 v Taylor,84 following Williams and Standard Chartered Bank. Taylor involved an appeal from the striking out of a negligence claim against Mr Taylor, who was a director of a company that had constructed defective villas. In Taylor,85 the Court of Appeal identified four overlapping rationales in Trevor Ivory and Williams:
(a) ―Disattribution‖. If the actions of the employee defendant can be attributed to the company, they are necessarily not the actions of the employee.
(b)Protecting limited liability. The concern that allowing a claim against an employee in these circumstances is erosive of the concept of limited liability.
(c) Inconsistency with pattern of contractual relationships. A sense that allowing a claim in tort against the employee would be inconsistent with the contractual relationships that the parties have chosen.
(d)“Elements of the tort” approach. Liability requires an assumption of personal responsibility for the relevant conduct where the tort so requires. There is a presumption against this where the employee was acting on behalf of the company.
[80] William Young P and Arnold J, with whom Ellen France and Glazebrook JJ agreed, held that the ―elements of the tort‖ approach was to be preferred. They dismissed the ―disattribution‖ approach, stating:86
[A]ttribution of conduct or a state of mind to a company for liability purposes does not mean that such actions (or state of mind) were not committed (or held) by the relevant individual. To put this another way, attribution provides a basis for imposing liability on a company, not conferring an immunity on an individual.
84 Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17.
85 At [29]–[34].
86 At [30].
The other rationales were considered relevant but not decisive factors. In a separate dissenting judgment, Chambers J expressly preferred the ―elements of the tort‖ approach.87
[81] The Court of Appeal emphasised that the Trevor Ivory and Williams cases have no application at all to cases in which assumption of responsibility is not an element of the tort.88 Where the cause of action is a tort that requires assumption of personal responsibility as an element, a director (or employee, or shareholder) can only be held liable where such assumption of responsibility is proven. If a company is involved, the Court should exercise ―considerable caution‖ before concluding that personal responsibility was assumed. This is due to the policy reasons of protecting limited liability and contractual freedom.
[82] The Court said that a less cautious approach to finding a personal assumption of responsibility could be taken where services of a professional or skilled kind are provided (that is, if the director, shareholder, or employee holds themselves out as acting in a professional capacity).
[83] As a result of Taylor, it is now generally accepted that a director has no special status in tort and will be liable once the elements of the tort are made out, regardless of whether it was committed on behalf of the company or not.89 The decision in Taylor arguably limited the operation of Trevor Ivory to cases where assumption of personal responsibility is an element of the tort. However, as the majority went on to consider the ways in which Mr Taylor might have assumed responsibility for the negligent building work (for which assumption of responsibility is not an element), the position is unclear.
[84] Nonetheless, to the extent that the judgments of Cooke P and Hardie Boys J
indicated that a director is immune from civil liability unless there was an assumption of personal responsibility, that approach must be taken to have been
87 At [144].
88 At [34].
89 See Peter Watts, Neil Campbell and Christopher Hare Company Law in New Zealand (Wellington, LexisNexis NZ 2011) at [3.13] and Peter Watts Directors’ Powers and Duties (Wellington, LexisNexis NZ, 2009) at 362–369.
rejected. In Body Corporate 183523 v Tony Tay & Associates,90 Priestley J agreed with that observation.91 He noted that one can detect in Taylor a willingness on the part of the Court of Appeal to re-examine Trevor Ivory in the ―right‖ case, but in the meantime the authority remains binding on the High Court.
Liability for building defects
[85] The conclusion that can tentatively be drawn from Taylor is that the requirement of personal assumption of responsibility in Trevor Ivory is relevant only where negligent misstatement is alleged. In a case of alleged pure negligence, Trevor Ivory arguably has no application at all. This was the reasoning of Chambers J, who, in his minority judgment, construed the case as one of pure negligence for building defects only and preferred not to confront Trevor Ivory. Instead, he looked to the ―degree of control‖ test articulated in Morton v Douglas Homes Ltd.92
[86] The ―degree of control‖ test in Morton reflects the approach that a duty of care is only imposed on a director if he had control over the negligent building operations. Hardie Boys J set out the test as follows:93
The relevance of the degree of control which a director has over the operations of the company is that it provides a test of whether or not his personal carelessness may be likely to cause damage to a third party, so that he becomes subject to a duty of care. It is not the fact that he is a director that creates the control, but rather that the fact of control, however derived, may create the duty. There is therefore no essential difference in this respect between a director and a general manager or indeed a more humble employee of the company. Each is under a duty of care, both to those with whom he deals on the company‘s behalf and to those with whom the company deals in so far as that dealing is subject to his control.
[87] Chambers J stated that he would allow the case against Mr Taylor to proceed in negligence on the simple basis that:94
In short, there is nothing in principle preventing a builder owing a duty of care to subsequent owners of the building. Of course, in the present case,
90 Body Corporate 183523 v Tony Tay & Associates HC Auckland CIV-2004-404-4824, 4
December 2009 at [100].
91 At [102]–[105].
92 Morton v Douglas Homes Ltd [1984] 2 NZLR 548 (HC).
93 At 595.
94 At [128].
Mr Taylor did not ―build‖ the villas on his own. Others will have helped. But that will not prevent Mr Taylor being liable in negligence. It is enough if his conduct ―is a contributory cause; [it does not need to be] in some sense a main or primary cause‖ (see Stephen Todd (ed) The Law of Torts in New Zealand (4th ed, Brookers, Wellington 2005), para [21.2.02]).
[88] Nonetheless, the majority in Taylor considered itself bound to apply Trevor Ivory. The majority identified that there were two bases upon which Mr Taylor could be held to have ―assumed a personal responsibility to eventual purchasers of the units‖:95
(a) by reason of the representations made in the brochure; and
(b) by adopting a hands-on role in the development exercise.
[89] On the first basis, that of negligent misstatement, the majority considered the remarks of McGechan J in Trevor Ivory apposite. McGechan J had refused to accept that a director of a one-man company is to be regarded as automatically assuming responsibility in tort for advice given on behalf of the company by himself. This was especially as Mr Ivory had made it clear that he was trading through a company.
[90] On the second ground, the majority said:96
On the second of the two arguments … above, Mr Rainey invoked the judgment of Hardie Boys J in Morton v Douglas Homes Ltd …. This case certainly provides some authority for the view that the directors of a building company with actual control of particular building operations owe a duty of care, associated with that control. …
[91] The majority noted that Morton had been discussed in Trevor Ivory, where Cooke P distinguished Morton on the basis that there had been an assumption of responsibility by the directors, and Hardie Boys J took the view that control over particular operations might justify the imputation of an assumption of responsibility. The majority then observed that:97
… on the basis of the approach taken in Morton, as qualified by Trevor Ivory, there might, depending on the facts, have been such involvement by Mr Taylor in the building operations as to give rise to an imputed assumption
95 At [39].
96 At [41].
97 At [42].
of responsibility, as recognised by Cooke P and Hardie Boys J in Trevor Ivory. It is fair to say, however, that proceeding along these lines is unlikely to be of much assistance to the owners. The legal structures associated with the development indicate a clear attempt by Mr Taylor to distance himself from liability and, even without Mr Taylor‘s affidavit denials of a direct role in what happened, what we know about the development indicates that Mr Taylor‘s participation was very different from that of the directors in Morton.
[92] Under Taylor, then, the Morton control test is relevant whether it is treated as the test establishing proximity when pure Hamlin-type negligence is alleged,98 or whether it is indicative of the assumption of personal responsibility required to establish proximity under the Trevor Ivory framework. As Hardie Boys J in Trevor Ivory said, ―assumption of responsibility may well arise or be imputed where the director or employee exercises particular control or control over a particular operation or activity‖.99
[93] The Morton ―control‖ test has been referred to in a number of recent High Court cases, generally in the context of whether a director had assumed personal liability: see, for example, Hartley v Balemi,100 Leuschke,101 Tony Tay,102 Chee v Stareast Investment Ltd103 and T & T Drainage Ltd v Rennell.104 In all those cases the difficulty of reconciling Trevor Ivory and Morton was mentioned. It is not necessary to confront that difficulty in this case.
The “degree of control” test in “one man” companies
[128] The Court of Appeal said:129
It is clear from the authorities that the act or omission on which Ms Ellison sues is the breach of the warranty in cl 6.2(5), rather than the carrying out of the faulty work. It is also apparent from the language used that the warranty is confined to works done or permitted to be done by the vendor. The issue is, who is the ―vendor‖ for these purposes.
(citations omitted)
[129] The Court then referred to the approach to cl 6.2(5) described in commentary:130
The clause covers only works done by or for the vendor or with the permission of the vendor. Thus it does not cover work done by a predecessor in title nor alterations by a tenant or licensee of the vendor without the vendor‘s knowledge or approval ...
129 Scott v Ellison [2011] NZCA 302 at [19].
130 At [20], citing P Blanchard A Handbook on Agreements for Sale and Purchase of Land (4th ed, Handbook Press, Auckland, 1988) at 718; and to the same effect, see D W McMorland Sale of Land (2nd ed, Cathcart Trust, Auckland, 2000) at [8.19] and Auckland District Law Society Property Disputes sub-Committee’s Rulings Manual (1992 ed) at [4.14].
[130] The Court noted that Ms Scott, who permitted the works to be done, has remained a legal owner throughout. 131 The Court said that the appellant‘s argument necessitates finding that her legal status as owner had changed. It agreed with the High Court that it had not. The Court said that Ms Scott was in a different position from the former owner who now had no ownership interest in the property. There was no reason to construe cl 6.2(5) so that Ms Scott was not liable for the promise. She was arguably in the best position to know what work had been done and whether it was code compliant.132
[131] The facts in Ellison v Scott distinguish it from this case. There the entity (Ms Scott) that undertook the building work and sold the property was the same, albeit carrying out these functions in different capacities while legally the same entity. In the present case, however, the entity that carried out the building work was MCL, while a subsequent owner, the trustees of the Spargo Family Trust, sold the property to the Franklins in January 2004.
[132] I have held that the Spargos were: (a) not the developers; and
(b)did not as directors of MCL, which was the developer, assume responsibility for the development.
[133] Mr Brittain accepted in oral submissions that in order to find that the Spargos had personally caused or permitted the works to be done, the Court would need to accept that the Spargos were either involved in activities such as obtaining the building consent, employing the designer, taking preliminary steps in the development and commissioning the builder or that they caused the works to be done by establishing a company RHL or MCL, to undertake the development. As I have stated, I have found the Spargos were not involved in the development such that they were developers. I do not think it can seriously be argued that by arranging for a
company of which they were shareholders and directors to undertake the
131 At [21].
132 At [23].
development the Spargos ―caused‖ the works to be done. It was perfectly legitimate for a corporate entity, MCL, to undertake the development. It was MCL that carried out the development, as I have set out in the previous sections of this judgment.
Conclusion
[134] At the time the works were carried out MCL was the registered proprietor of the property and the developer. MCL caused or permitted the works to be done. The Spargos, who with John Slavich obtained title to unit 11 in July 2002 after the building works were completed, have no liability to the purchasers of unit 11 under cl 6.2(5).
Role of the Tribunal
[135] The respondents filed an amended notice of cross-appeal on 21 September
2010 which amended the original notice of cross-appeal filed on 3 March 2010. The second respondents joined in the amended notice of cross-appeal. There was an additional challenge to part of the decision, namely the finding that if it were not for the non-delegable duty, the appellants were not liable in negligence.
[136] There was an added ground of appeal which states:
There were no facts to support a finding that the appellants were not negligent, because the Tribunal failed to carry out a proper investigation.
Although this ground of appeal was limited to the cross-appeal, the respondents submitted this issue should be approached more widely on the basis of ―the Court‘s general discretion‖.
[137] On 6 October 2010 Woodhouse J granted leave for the amended notice of appeal to be filed, but adjourned the hearing on that date.
[138] The respondents submit that ―The Tribunal process is inquisitorial in nature‖. Their complaints about the process undertaken by the Tribunal in this case appear to be two-fold:
(a) Although the respondents ―expressly‖ called upon the Tribunal to
exercise its investigative power, it failed to do so; and
(b) Questioning by counsel for the respondents was curtailed.
[139] In support of their submission that the Tribunal process is inquisitorial in nature the respondents referred to:
(a) the express investigative power under s 73(1)(a) of the Act;133
(b)other powers conferred on the Tribunal by s 73 which include the power to require production of documents, the power to appoint an expert and the power to issue a witness summons of its own volition;
(c) the power under s 111 to join parties on its own initiative;
(d)the discretion under s 57(3) regarding cross-examination. The Tribunal is not required to permit the cross-examination of a party or person but may in its absolute discretion do so; and
(e) that the Tribunal does not require formal pleadings.
[140] The respondents also referred to the Chair‘s Directions for Standard
Dwellinghouse claims where it is stated:134
The focus of process will be an inquiry on the part of the Member of the
Tribunal.
[141] The respondents also referred to Procedural Order No 6 dated 12 October
2009 in this proceeding where the Tribunal Member stated at para 10 (referring to s 73 of the Act):
133 Section 73(1)(a) of the Act provides that ―The Tribunal may do any or all of the following things in relation to adjudication proceedings or the parties to them (a) conduct the proceedings in any manner it thinks fit, including adopting processes that enable it to perform an investigative role‖...
134 Weathertight Homes Tribunal, Chair’s Directions (Standard Dwellinghouse Claims) (August
2010) at [16.3].
At the hearing the adjudicator will question the parties and allow other parties to ask supplementary questions.
[142] The respondents say that they specifically called upon the Tribunal to exercise its investigative power on two occasions, in a written opening filed prior to the hearing135 and in oral submissions at the commencement of the hearing.136 The respondents complain that the Member‘s questioning was ―perfunctory and brief‖, and ―supplementary questioning by counsel for the claimants was curtailed‖. Mr Brittain in oral submissions contended that the Member had ―failed miserably‖ to carry out his investigative function but then found against the claimants on the basis that the evidence was not tested. He submitted that the Tribunal‘s approach – stating, for example ―Mr Spargo was not challenged on this evidence‖,137 and ―No questions were asked of them [the Spargos] as to their role as trustees‖138 – was inappropriate when the process was investigative. He submitted that the Tribunal was required to challenge the Spargos if they needed to be challenged on any aspects of their evidence.
[143] Counsel for the respondents submitted that the situation was compounded because there were ―gaping holes‖ in the documentation submitted by the Spargos to the Tribunal and that their production of documents was ―selective‖, excluding documents adverse to their position. In this context he referred to the Spargos‘ application to be removed as parties from the proceedings before the Tribunal which was deferred pending further disclosure of documents by the Spargos, and then not
proceeded with.
135 In written opening submissions the claimants said at para 3: ―The claimants are not approaching this hearing on an adversarial basis. The claimants request that the Tribunal fully perform its investigative role‖.
136 The transcript of the proceedings before the Tribunal records at page 10 that Mr Moorcroft said: We previously were meant to have an expert which has fallen through due to various reasons. And so the way we want to run – this hearing, sir – was not as an adversarial hearing. I wanted
to almost take, not a backseat, sir, and let yourself run it, as you are doing. And Mr – I really want Mr – I wanted to use the Assessor to go through this bundle of photos which I‘ve complied
[sic] out of the assessor report and out of the IPMS report which you‘ve probably seen, sir,
which is what the project manager actually took before that fell through so I have complied [sic] some photos. So I really want the Assessor to comment, as you have said, on all the defects and attribute the failure to whatever reason he sees fit.
137 At [22] of the decision
138 At [35].
[144] Counsel also placed reliance on the statements by Ellis J in Yun v Waitakere City Council.139 In that case the claimants before the Tribunal appealed against a decision of the Tribunal removing as parties to those proceedings the Waitakere City Council and a Mr Kail. In determining the approach to an application to remove parties under s 112 of the Act, Ellis J analysed the relevant provisions and said:140
The Tribunal is, in my opinion, materially different from a Court in a number of important ways. As I have already indicated, I largely accept Mr Dillon‘s submission that the Tribunal is primarily inquisitorial in nature, although I also accept that aspects of the adversarial process do have a role to play in its proceedings. Nonetheless, it is because of its fundamental investigative role that I think it is dangerous simply to interpret or gloss its explicit statutory processes by reference to Court procedure.
[145] The Judge went on to say:141
… the Tribunal is explicitly performing an inquisitorial role.
[146] Ellis J considered that the s 112 removal jurisdiction was not precisely analogous to the strike out jurisdiction of the Court under r 15(1) of the High Court Rules and that the threshold in s 112 is plainly not limited to the ―no arguable cause of action‖ test developed in respect of strike out actions. She held that consideration of evidence in a removal context is permitted, subject to the obligation imposed by s
57(2) of the Act to comply with the principles of natural justice. In that case, where the Tribunal had specifically sought evidence from the appellants to support their claims against the respondents but they had declined to provide it, natural justice did not require the Tribunal to ensure that the giving of an opportunity to be heard was acted upon.
[147] The Act gives to the Tribunal wide investigative powers to facilitate the purpose of the Act stated in s 3:142
3 Purpose of this Act
The purpose of this Act is to provide owners of dwellinghouses that are leaky buildings with access to speedy, flexible, and cost-effective procedures for assessment and resolution of claims relating to those buildings.
139 Yun & Phon v Waitakere City Council HC Auckland CIV-2010-404-5944, 15 February 2011.
140 At [29].
141 At [61].
142 Section 3 was amended as from 23 July 2011 to include as a purpose provision for matters relating to the financial assistance package that was recently introduced.
[148] Section 57 requires the Tribunal to manage the adjudication proceedings in a manner that tends best to ensure the purpose of the Act, consistent with the principles of natural justice. It provides:
57 Adjudications to be managed to achieve purpose of Act
(1) The tribunal must manage adjudication proceedings in a manner that tends best to ensure that they are speedy, flexible, and cost-effective; and, in particular, must —
(a) encourage parties where possible to work together on matters that are agreed; and
(b) use, and allow the use of, experts and expert evidence only where necessary; and
(c) try to use conferences of experts to avoid duplication of evidence on matters that are or are likely to be agreed; and
(d) try to prevent unnecessary or irrelevant evidence or cross- examination.
(2) In managing adjudication proceedings, the tribunal must comply with the principles of natural justice.
(3) Subsection (2) does not require the tribunal to permit the cross- examination of a party or person; but the tribunal may in its absolute discretion do so.
[149] However, as Mr Pyke submitted, the provisions of the Act do not exclude the right of parties to frame and argue their case in the terms that they wish. It is not accurate to say that the process is ―inquisitorial in nature‖, as submitted by the respondents. Rather, the procedure has both adversarial and inquisitorial elements. The process to be adopted in any proceeding must be determined by the Member in accordance with s 57 exercising the powers conferred on the Tribunal by s 73.
[150] It is important to note in this context that s 73(1)(a) which provides a wide power to the Tribunal to ―conduct the proceedings in any manner it thinks fit‖, specifically provides that the processes may include processes that enable the Tribunal to perform an investigative role. There is no statutory direction that would exclude the application of both adversarial and inquisitorial processes in managing adjudication proceedings to best ensure the purpose of the Act. Nor is there any limitation, such as that in s 38 of the Disputes Tribunal‘s Act 1988, which requires
the Disputes Tribunal to approve representation by parties who are entitled to attend and be heard by the tribunal.
[151] In Yun v Waitakere City Council Ellis J was concerned with the jurisdiction of the Tribunal to remove parties under s 112. She contrasted the requirements of the Act in that context with the strike out jurisdiction of the Court under the High Court Rules and the tests that have been developed in respect of strike out actions. She recognised a ―fundamental investigative role‖ for the Tribunal but accepted that aspects of the adversarial process have a role to play in its proceedings.143 She thus specifically acknowledged the dual processes that may operate under the Act.
[152] While the Tribunal is required to manage adjudication proceedings to best ensure the purpose of the Act are achieved and has wide discretionary powers to enable it to do so, it is appropriate that parties who elect to conduct their own case will be permitted and facilitated in doing so, subject to management of the adjudication proceedings by the Tribunal in terms of the Act. The Chair‘s Directions and Procedural Order No 6 referred to above at [140] and [141] reflect this dual approach.
[153] In this case, in the proceedings before the Tribunal, counsel for the claimants played an active role. Written opening and closing submissions were filed, both by counsel for the claimants and by the Spargos who represented themselves at the hearing. Mr Spargo, in particular, was extensively cross-examined by Mr Moorcroft. The Member also asked questions, consistent with the Tribunal‘s investigative role.
[154] The assertion that questioning by counsel for the claimants was curtailed has no basis. In making this assertion counsel referred to the following passage in the transcript:
RESUMED [1.06 PM] TRIBUNAL MEMBER: So Mr Moorcroft, now that you have got yourself
refreshed over the luncheon break, I hope it has not extended the length of the possible questions you are going to ask.
143 At [29].
MR MOORCROFT: No, sir, I have just got a few more, if you bear with me, sir, I won‘t be much longer. It was just with regards to Lindsay Mack actually. Can you tell the Tribunal how – whenever you spoke to Mr Mack or whenever you dealt with him, he – did it appear that he was completely in charge of the running of the development?
[155] This exchange must be read in context. Prior to the luncheon adjournment which was to be taken at 12 noon Mr Moorcroft had indicated to the Member that ―I have got one more question and then I am done‖. The Member replied: ―I don‘t want to shorten you at all. Mr Spargo is going to be here this afternoon‖ to which Mr Moocroft responded that he would ―carry on after lunch, no problem‖. But he then proceeded, with the Tribunal‘s acquiescence, to put ―one more question‖ which turned out to be, as the Member later commented, ―a multi-headed one single question‖, to which Mr Moorcroft agreed, ―Yes, it turned into a few ...‖. The situation was then left that Mr Moorcroft should continue after lunch.
[156] That was the context in which the exchange referred to at [154] above took place following the luncheon adjournment. Far from the Member curtailing Mr Moorcroft‘s questioning, he had noted that Mr Moorcroft‘s anticipated ―one more question‖ required more detailed cross-examination and facilitated the continuation of questioning by Mr Moorcroft of Mr Spargo both before and after the luncheon adjournment. Further, the transcript shows that the Member on occasion assisted counsel with his questioning of Mr Spargo. For example, he suggested that counsel could put to Mr Spargo paragraphs from Mr Mack‘s statement and ask for his comment on them.
[157] The respondents were represented at the Tribunal hearing. Through their counsel they had the ability to make appropriate applications to the Tribunal to adduce additional evidence or call further witnesses such as Mr Mack, who they now
say should have been called.144 No application of this kind was made to the Tribunal
144 Mr Mack was a party to the proceedings but withdrew before the hearing.
during the hearing. No adjournment was sought to enable the claimants to adduce further evidence before the Tribunal. No orders were sought for the production of further documentary evidence.145 There was no formal application by the respondents that the Tribunal should exercise its investigatory powers on any specific issue but rather had made a general invitation to exercise such powers, which is simply consistent with the powers the Tribunal has under the Act. No application was made that the Tribunal should draw an adverse inference on any particular matter or matters under s 75 of the Act.
[158] No application was made to adduce further evidence on appeal. It is not for this Court on appeal to speculate what effect any further evidence that might have been adduced (whether by further cross-examination of the Spargos, calling Mr Mack or any other witness to give evidence, or the production of further documents) might have had on the outcome of the hearing.
[159] The proceedings before the Tribunal commenced with the respondents‘ application on 26 February 2007. There were no less than six Procedural Orders of the Tribunal giving directions on removal and joinder of parties and the processes to be adopted to ready the matter for the hearing which took place on 28 October 2009. The claimants (the respondents) had consistent legal representation throughout. Against that background, their contention that the hearing should have been conducted differently, and that the fault lies with the Tribunal, is unconvincing, to say the least.
[160] The submissions of the respondents in relation to the role of the Tribunal, and the manner in which it was performed in this case lack merit. They are rejected.
145 It appears that conveyancing files made available at the offices of the Spargos‘ solicitors, Evans Bailey, have not been accessed by the respondents. At a conference with the Tribunal Member on 24 August 2009, non-compliance by the Spargos with a discovery order in Procedural Order No 3 resulted in their application for removal not being proceeded with. Mr Gardyne who was then representing the Spargos indicated they were not in a financial position to comply but had deposited documents at his office (as recorded in Procedural Order No 4).
Summary of conclusions
[161] The conclusions I have reached on the three issues identified are:
(a) The Spargos are not ―developers‖ and do not personally owe a ―non-
delegable duty‖ to the respondents.
(b)The Spargos do not owe a duty of care as directors to the respondents because they did not have the requisite control over the development for a duty of care to be imposed personally on them. Consequently whether such a duty was breached does not arise.
(c) The Spargos are not personally liable as vendors for breach of cl 6.2(5) of the agreement for sale and purchase with the Franklins.
[162] Given these findings, there is no basis for remitting any issues back to the Tribunal. I have also rejected the respondents‘ submissions concerning the role of the Tribunal and the performance of its functions in this case.
Result
[163] The appeal is allowed. The determination of the Tribunal that the Spargos are developers146 is set aside.
[164] The cross-appeal by the respondents is dismissed.
[165] The orders of the Tribunal that payment be made to the respondents by the appellants147 are quashed.
[166] While I have nothing but sympathy for the situation which the respondents
have found themselves in, the Spargos‘ involvement in this case does not give rise to
legal liability on their part.
146 At [18] of the decision.
147 At [93] of the decision.
Costs
[167] The appellants have been successful and are entitled to costs on a 2B basis together with proper disbursements.148
148 See the Minute of White J dated 10 March 2010.
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